Should We Follow Germany's Lead On Renewables?

April 10, 2009

Do policymakers need to start thinking a bit more creatively about how to spur renewable energy production here in the United States? Maybe. So far, the policy discussion has mostly focused on either carbon caps—which, by making fossil fuels more expensive, give a boost to wind, solar, geothermal, and other low-carbon sources—or else on flat renewable mandates for utilities. Both are sound ideas for reducing emissions. But a carbon price is proving tough to enact, while many states that have put renewable electricity standards in place are struggling to meet their goals.

So why not follow Denmark or Germany's example and adopt a feed-in tariff? I recently wrote a primer on this idea for Audubon (there are even pictures). The basic idea is that utilities have to buy renewable power from anyone who produces it. Period. If I install a solar panel on my roof, I can sell that power into the grid, and the utility will offer me a 15- to 20-year contract at a fixed rate that will cover my costs and ensure a tidy profit. (The rate is set by regulators, and the utility spreads the extra cost among all ratepayers; in Germany, this has meant $4 more per household per month.) The result? Private investors stampede in. Germany, which gets less sun than Minnesota, now has half the world's installed solar capacity. Even in sleepy towns like Freiburg, nearly everyone's rushing to sell electricity from their rooftop solar panels or set up a wind turbine on their farm.

Mariah Blake recently explored this idea at greater length in a terrific piece for The Washington Monthly, noting that Gainesville, Florida, has recently adopted a feed-in tariff for solar power and has seen a stunning burst in new photovoltaic installations. At a New America event today pegged to that piece, Ed Regan, a manager at the Gainesville municipal utility, talked a bit more about the city's experience. He had nothing but good things to say, and noted that the tariffs let just about anyone "invest" in power generation. On the downside, because production is so decentralized, many investor-owned utilities may not love the idea—they'd rather own the wind or solar farm themselves than outsource it to households or farmers or companies who then reap all the profit. So that's where you may see opposition.

Also at the event, Toby Couture of the National Renewable Energy Laboratory explained that researchers have been a bit puzzled by feed-in tariffs, trying to figure out why they work so well. Partly it's because they give much-needed certainty to investors—this isn't like the production tax credit, where companies get jittery about entering the market because the credit might expire within a year. The long-term feed-in contracts, by contrast, remove most of that risk. And the tariffs can also help drive innovation—since the rate offered for renewable power keeps declining each year, manufacturers face pressure to keep increasing the efficiency of panels and turbines. (Solar R&D has been booming in Denmark and Germany for this reason.)

Now, we're not likely to see a federal feed-in tariff in the United States anytime soon. In the last Congress, Jay Inslee introduced a bill in the House that would levy a wire charge on all U.S. consumers and then create a national fund, letting states voluntarily dip into that money to establish their own feed-in tariff programs. But Inslee's senior energy staffer, James Bradbury, said that Inslee was mainly focused for now on the big Waxman-Markey energy bill, which focuses on cap-and-trade and a renewable electricity standard for utilities. That said, eleven state legislatures are considering their own feed-in tariff laws, so that's where the action's likely to be.

One question is how a state feed-in tariff would interact with a federal renewable standard (right now, the Waxman-Markey bill would require utilities to get 25 percent of their electricity from renewable sources by 2025). Would a feed-in law make it easier to meet those targets, since it'd boost private investment and foster production from smaller, more dispersed sources? Or would it just create a confusing patchwork of different rules? Feed-in advocates have suggested that the two policies can play nicely together, but I'm not sure anyone's definitely answered this question yet.